Cayman officials discuss bank de-risking in the US, Bahamas

Officials from the Ministry of Financial Services and the Cayman Islands Monetary Authority held a second round of talks in Washington, D.C., in December about the danger of U.S. banks severing their business ties with banks in the Caribbean.

Banks are still uncertain about their regulatory obligations related to the enforcement of sanctions, tax transparency and anti-money laundering. The growing body of regulations and the possibility of large penalties and reputational risks have increased the compliance costs for global banks and led some to discontinue risky or no longer profitable business lines.

The exiting or limiting of business relationships to avoid rather than manage regulatory risk is also known as de-risking.

“It’s important to continue these talks because de-risking is still creating unintended, detrimental effects globally,” said Minister of Financial Services Wayne Panton. “We had our own taste of it when it disrupted our money services business in 2015, and the people of Cayman certainly remember their relief when the issue was resolved.”

In 2015, Fidelity and Cayman National stopped serving money service providers in the Cayman Islands, citing declining margins and increased regulatory risk around anti-money laundering.

The move affected the ability of foreign workers in Cayman to send remittances and led to a U.S. dollar cash shortage.

Cayman government officials raised the issue with several international bodies and regulators last year.

The December delegation from Cayman that presented the de-risking issue from the Caribbean perspective included the ministry’s legislative policy adviser, André Ebanks, CIMA Deputy Managing Director (Supervision) Anna McLean and Policy Division Head Justine Plenkiewicz. They met with Matt McGuire, U.S. executive director of the World Bank Group; senior Democratic staff for the U.S. House of Representatives Committee on Financial Services; senior staff for Sen. Pat Toomey (R-Pennsylvania), chairman of the Senate Subcommittee on Financial Institutions and Consumer Protection; and representatives of the Office of the Comptroller of the Currency.

On Dec. 12, CIMA Managing Director Cindy Scotland and Mr. Ebanks attended the Financial Stability Board’s Regional Consultative Group for the Americas meeting in Nassau, Bahamas. CIMA, which regulates Cayman’s financial services industry, is a member of the consultative group.

Mrs. Scotland and Mr. Ebanks contributed to the Financial Stability Board’s discussions on the impact of reductions in correspondent banking relationships in the Americas.

Mr. Ebanks said that overall, they both thought the FSB discussions and the talks in Washington were open and informative.

“Bank de-risking was clearly important to meeting participants, and as a result it is gaining momentum as a focus area,” he said.

Minister Panton said government will continue supporting international efforts to resolve the unintended effects of de-risking.

He noted that Cayman’s banking sector fully supports the ministry’s efforts to influence broader developments in de-risking by engaging with stakeholders internationally.